Huge corn and soybean crops are causing a complex logistic problem in Brazil, which is dramatically hurting their export shipping.
Brazil is expected to ship a record 39 million tons of soybeans overseas in the 2012-13 growing season, yet February exports of Brazilian soybeans totaled only 960,000 tons, down from 1.57 million tons the previous year, according to USDA. What’s going on?
The problem is complex. Brazil’s corn crop was large and most of it was or is being exported. The country’s soybean crop is record large, soybean harvest has been delayed, and Brazil’s logistics infrastructure is having trouble accommodating both crops.
"Corn exports have more than doubled compared to last year," says Luis Neves, director of logistics for CHS in São Paulo, Brazil. CHS is a Minneapolis-based farmer-owned cooperative with operations in Brazil. "And there will be 6 million tons more soybeans exported this year compared with last year," he adds.
Total soybean production this year in Brazil is forecast at 82 million tons, compared with output last year of 67 million tons.
"There is much more product, but the infrastructure, which has always been below current needs, is the same," says Neves. "What was poor is now unsustainable in terms of flow capacity."
The sheer size of this year’s corn exports from Brazil is also working to delay soybean exports. Corn exports, which are typically completed by December, are still moving out of Brazilian ports.
Adding to the problem, Brazil recently enacted a law reducing the number of hours truck drivers can work in a given day. Drivers are required to rest for at least 11 hours a day and take breaks after every four-hour driving shift. The reduced trucking schedule, along with an inadequate rail infrastructure and road system is also impeding the flow of agricultural products from the interior growing regions to the ports, which can be located more than 1,200 miles away.
Neves does not expect the situation to improve in the short-term. "Certainly in the next three to four months, the pressure will be intense because there is a huge soybean crop that has to be exported and the logistics flow capacity is limited," he says. "The market is at such a large inverse that everyone wants to be first to load product." Brazilian soybeans, f.o.b. the port, are priced at a 25-cent discount to the Chicago Board of Trade front-month contract.
The backup at the country’s two largest ports is lengthy. At Paranaguá, the second most important shipping port for agricultural products, the wait is about 55 days to get a ship loaded and moving. At the port of Santos, the wait is closer to 35 days, says Neves.
"The rural logistics are poor," he says. "There is no Mississippi River that crosses the production area, and rail in Brazil is much less efficient than it is in the United States." He estimates that it costs $150 per ton to move corn or soybeans from Sorriso in Mato Grosso to the ports.
For corn producers that means when prices are $7.00 per bushel, it costs $150 to move the corn to the port, leaving only $100 per ton, or $2.80, for the producer. Still, he says, it makes sense to grow corn because it is a second crop planted after beans are harvested and the government makes subsidizes the crop, paying the difference between the farm price and the market price.